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HMRC internal manual

VAT Place of Supply of Services

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HM Revenue & Customs
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Intermediaries involved in the export of goods: Zero rating

Where the place of supply is the UK, an intermediary such as an agent or broker, can zero rate the supply of their services in making arrangements for certain supplies between the supplier and the customer. These intermediary services can be supplied either to the supplier (in finding a customer) or to the customer (in finding a supplier), or even to both supplier and customer.

Item 2 to Group 7 of Schedule 8

Zero rating under item 2 of Group 7 applies to the supply of services consisting of the making of arrangements for

  • the export of any goods to a place outside the Member States, or
  • a supply of services of the description specified in item 1 of Group 7, or
  • any supply of services which is made outside the Member States.

This Group does not include any services of a description specified in Groups 2 or 5 of Schedule 9 (exempt services - insurance and finance).

Item 2(a) to Group 7 of Schedule 8

Zero rating under item 2(a) applies only where an intermediary’s service is supplied in the UK in arranging an export of goods from within the EC to a place outside the territory of the EC. Intermediaries that zero rate their services under this item must maintain evidence of the export of the goods involved.

The supply of services by an intermediary who arranges a supply of goods involving their removal from the UK to another Member State, or a supply of goods which is itself made outside the EC, is not zero-rated under item 2(a).

Item 2(b) to Group 7 of Schedule 8

Zero rating under item 2(b) applies to supplies within the UK of the services of an intermediary making arrangements for a supply of work on goods, where the work is carried out in the EC on goods for export to a place outside the territory of the Member States. Intermediaries supplying such services must maintain evidence of the export of the goods concerned.

Item 2(c) to Group 7 of Schedule 8

Zero rating under item 2(c) can only apply where the intermediary’s supply is made in the UK, but the arranged supply is itself made outside the EC.

It is possible for a UK intermediary to supply services to a UK customer in arranging a service for which the place of supply is the recipient’s country outside the EC. In these circumstances, the UK intermediary’s service to the customer, the UK principal, is supplied in the UK but is zero-rated under item 2(c) of Group 7, because the service is the making of arrangements for a supply of services which is itself made outside the EC.

Insurance and Financial services

The legal note to Group 7 excludes from zero-rating under this Group any exempt services falling within Schedule 9, Group 2 (Insurance) or Group 5 (Financial services). However, a relief from VAT (the services remaining exempt, but with the right to deduct input tax) is available for certain insurance and financial services when they are supplied to a person who belongs outside the EC or are directly linked to the export of goods outside the EC. This is given by the VAT Act 1994 Section 26(2) (c), and the VAT (Input Tax)(Specified Supplies) Order 1999 (SI 1999/3121). For details of the operation of the Order, see VATINS, VATFIN and PE.

Examples of services zero rated under Item 2

Example 1

Where an agent obtains an order from an overseas purchaser for UK-produced goods and those goods are actually exported from the EC, the agent’s supply of services to the UK exporter or the overseas buyer is zero rated under item 2(a). The agent must obtain evidence that exportation from the EC has taken place, as explained in VAT Notice 703.

Example 2

Where an intermediary arranges for a person in the UK to provide a repair service that is itself zero rated under item 1 of Group 7, the intermediary’s supply is zero rated under item 2(b). The intermediary must obtain acceptable evidence that the goods on which the work is carried out are exported from the EC (see VAT Notice 703).

Example 3

Where an intermediary arranges for a person who belongs in Canada to receive consultancy services from a person who belongs in the UK, the supply to the UK consultant is zero rated under item 2(c) because the arranged supply is supplied outside the EC.

Examples of services not zero rated under Item 2

Example 1

Services supplied by a person acting as a principal, even if their trading title or classification includes the word “agent” or “agency”.

Example 2

The service of an intermediary in arranging a supply of services whose place of supply is within the EC, is not zero rated under item 2(c).

Example 3

Where an intermediary arranges a supply of goods which are supplied within the EC, and those goods remain in the EC, the supply is not zero rated under item 2(a)

Example 4

Where an intermediaries’ supply is exempt under Group 2 (Insurance) or Group 5 (Finance) of the Exemption Schedule, the services cannot be zero-rated under item 2 of Group 7, because of the Legal Note to the Group which states that This Group does not include services of a description specified in Group 2 or Group 5 of Schedule 9).